Third party ownership in photovoltaics seems to be the wave of the future.

Wal-Mart is asking suppliers to build, own, and maintain the PV systems, and sell the electricity to WalMart, allowing them to avoid the large up-front cost, and having to branch out from what they are good at: selling products to consumers. I say that this is the model of the future for the same reason I like CitizenRE’s model: a business focused on installing and maintaining systems will be able to do it much more cheaply and efficiently than a building owner, who may not know anything about solar. In the residential space, there is the added advantage that the federal tax credit is not capped at $2000, and the ability to take advantage of accelerated depreciation.

Update: 5/7/07 Wal-Mart has completed the RFP. According to the press release the winning bidders are SunEdison (as I predicted below), BP Solar, and PowerLight. Thanks to Marc Gunther for tipping me off to this.

Separate ownership is nothing new on the utility scale: electricity generation is often built and operated by a third party, who receives payment for electricity produced. For instance, the new solar farm to be built by SunEdison for Xcel Energy in Colorado’s San Luis Valley.

Speaking of SunEdison, I will be very surprised if they do not bid on the Wal-Mart RFP. I heard their CEO Jiggar Shah talk about their model at Solar 2006, and he wasn’t talking about installing solar one residential rooftop at a time. I admit I was somewhat skeptical at the time… I thought solar installations would take much longer to ramp up than he was saying. I’ve changed my mind since then.

Solar power is still a business totally reliant on government policy. If the customer had to pay the current $6-$9 a watt of installed DC power, the only locations where it would make sense would be off-grid, but with companies able to capture a combination of rebates and tax credits worth up to 80-90% of that price in states with good incentives (the same states, incidentally, in which Wal-Mart is issuing its RFP: California, Colorado, Connecticut, Hawaii, and New Jersey) it’s a whole different ball game. And, with the Democrats taking power in Washington and many states, the outlook for renewable energy incentives is definitely bullish.

What does this mean for the investor? Buying solar electricity will have a negligible effect on Wal-Mart’s bottom line, except if they manage to use the publicity to brighten their public image, which could have some indirect benefits for the bottom line. However, so long as federal and state support for solar remain strong or increase, it’s good news for PV manufacturers and suppliers. But don’t just buy anything on the list: do your homework, and look for companies that already have a working technology, and are ready to rapidly increase volumes within 1-2 years.

Update 1/18/07: It turns out that there is a company in South Africa called NuRa using this same model. When it comes down to it, people want electricity, not solar panels.